Think about probability

I have been hospitalized for a severe tonsillitis. I felt the fear of “I can’t breathe,” but it became easier with an intravenous steroid, and when I said I would be discharged, the physician in charge was an amusing person and said, “Your win rate is fifty fifty; if you want to go home, I won’t stop you.” In the end, I was discharged quickly, but it wasn’t a matter of probability; what mattered was whether there was a possibility of worsening again and suffering. Since I was admitted, the idea of staying a bit longer for “just in case” was probably important.

On the way home, I bought a cigarette and smoked in the smoking area, and afterward it was fine… lol.

If you formalize responses to price movements, probabilities can be derived from past data.

For future price fluctuations, it is merely an “expected value.” But if you mechanically set rules for buying and selling, that is, establish a single “standard,” you will execute trades based on the probabilities derived from statistics with an expectation.

In the book “New Edition: Zhongyuan Trend Positioning Method,” regarding the use of the Zhongyuan line,

“Faithful execution utilizing the probabilistic standardized trading method”

This is stated as the basis (Part I: Explanation).

Since you are deciding buys and sells in detail, it is natural.

By the way, as a basic, there are applications; the book also mentions classifications of applications, but I will discuss this next time, and in reality, one should consider that there can be a considerable range within the “basic.” Even if it is “standardized,” in reality there remains a portion corresponding to “discretion.”

What to trade, how much capital to prepare, how large to size each position, and so on.

In particular, it seems confusion is likely at the starting point.

With the Zhongyuan line, at the stage where you’ve learned the rule of the Zhongyuan line, not only the logic but also the intuition, and you think “Alright, I’ll start,” the unseen parts due to lack of experience—how far you can imagine them, whether you can bring in experiences from other fields to set an appropriate range—these practical issues are surprisingly important.

If you start calculating that you’ll make easy money from the start, you’ll just have a streak of losses by chance, and you’ll miss seeing the good aspects of the method and give it a poor evaluation… such a waste.

At first, you start with a little fear and a small quantity. This is correct, but after a few attempts, you’ll find you’re doing better than you thought, so you think, “Alright!” and you increase the position size, only to suffer an unexpected large loss… another waste.

Both are common in the market.

When choosing a stock, if you dislike individual losses too much, you may pick a stock that is doing well in the short term and suddenly go on a losing streak… Conversely, if you pick a stock that has been losing and imagine a reversal, you may see continued losses…

Even with a so-called win rate of 50%, or 60%, or even 70%, there will be moments when you do not win if you are not always 100%. Therefore, rather than numbers, a recognition that “there will be losses” is required; however, a practical preparation often falls short in the world of markets.